This opaqueness stands out, given Vanguard’s reputation as a champion against financial-market practices that can disenfranchise individual investors. For many, lack of disclosure has long frustrated shareholders of both actively run funds and index funds, which typically release holdings quarterly.

Vanguard’s reasoning

So what does Vanguard have against daily portfolio disclosure for the ETFs? “It’s really in the interests of our shareholders,” says Doug Yones, head of Vanguard’s domestic equity indexing and ETF product management.

Daily reporting can encourage so-called front-running and free-riding by opportunistic traders, Yones says. In front-running, sophisticated traders jump ahead of institutional buying and selling. For example, when an index is reconfigured, the changes can affect share prices of constituents. In free-riding, savvy market players piggyback on institutional trading.

The Vanguard approach is notable because when it comes to transparency, ETFs are the anti-mutual-fund. Investors can see every stock an ETF held at the close of trading yesterday—with the exception of Vanguard’s offerings. Such openness in fact is a selling point for investors and financial advisers who don’t want any surprises after surviving the 2008 stock-market meltdown.

Vanguard’s independence on this matter puzzles some ETF industry observers.

“The sunshine of transparency means index-linked funds are less likely to stray from their mandates,” says Matt Hougan , president of researcher ETF.com. “Otherwise they’re saying ‘trust me.’ And I do trust Vanguard, but as a general rule I don’t trust everyone.”

The transparency issue evidently hasn’t hurt Vanguard. Its ETFs are competitive on both price and performance, and while their trading volume isn’t as great as offerings from leaders including BlackRock Inc. ’s iShares and State Street Corp. ’s SPDRs, for many investors the Vanguard name is a seal of approval.

ETFs from Vanguard competitors that post daily holdings, such as iShares and SPDRs, seem to be succeeding in closely mirroring their underlying indexes.

“We’re not afraid of the transparency,” says Paul Lohrey, head of U.S. iShares product design and quality. “It serves the investor well. It gives the marketplace a good, clear understanding of what they’re owning and how it will track the index.”

And in fact, the indexes Vanguard ETFs track may be one reason why the firm opposes daily disclosure.

Most Vanguard U.S. stock ETFs mimic proprietary indexes from the University of Chicago’s Center for Research in Security Prices, or CRSP. But neither CRSP indexes nor the FTSE benchmark for most Vanguard international-stock ETFs are heavily used.

Widely tracked indexes such as those from MSCI, S&P Dow Jones Indices and Russell Investments, by contrast, are tougher to front-run or free-ride. “Our daily holdings disclosure does not necessarily provide actionable information,” says Lohrey of iShares.

Vulnerable ETFs?

FTSE and CRSP indexes march to their own drummer. Accordingly, says Todd Rosenbluth, director of ETF and mutual-fund research at analysts S&P Capital IQ, “what’s inside isn’t always as obvious.”

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